A Look At Airlines After Deregulation Shows Consumer Benefits Took Off

Anyone familiar with the airline business is well aware that the turbulence in the industry in the first half of the 1990s can be traced to a 1978 decision by the government to deregulate the airlines.

If anyone has lingering doubts about that connection, a new book likely will put an end to them.

"The U.S. commercial aviation industry was stood on its head in 1978 and it will never be the same again," write James Ott, a reporter for Aviation Week, and Raymond E. Neidl, an airline industry analyst.

All that is good about the industry-the abundance of flights and low fares and the rise of new, efficient, low-cost carriers-as well as all that is bad-the unprecedented unprofitability of many carriers and the constant struggle of established airlines to compete-can be traced to the government's decision 17 years ago to pull away from strict economic oversight of the airline business, the authors write.

Most of the upheaval, as the authors see it, has occurred during the first half of the 1990s, spurred by the worldwide recession that took hold in the early '90s.

Moreover, the upheaval has not been confined to the U.S. airline industry. In the last couple of years, the idea of deregulating airlines has been exported to Europe and other parts of the globe, causing a transformation of the airline business worldwide, they write.

What has deregulation wrought? According to the authors, three major trends likely will change the industry for years to come:

- The rise of efficient, low-cost carriers such as Southwest Airlines and Valuejet, which have structured themselves to offer low fares and still turn a profit.

- The struggle under way by the airline giants to remain competitive, which will continue, the authors say. Hampered by high labor costs and other ills that contributed to unprecedented losses in the early '90s, these carriers-including American Airlines, United Airlines and Delta Air Lines-are experimenting with a variety of ways to remain viable. These efforts include employee ownership, personnel cutbacks and creating their own low-cost "airline-within-an-airline."

- The trend among large carriers around the world to join in alliances designed to expand their international route networks. Recent alliances between Northwest Airlines and KLM Royal Dutch Airlines, and United and Lufthansa Airlines are just the beginning of associations likely to come about in the years to come, the authors write.

As for the industry's future, Ott and Neidl do not foresee any significant consolidation of the airlines similar to what has been occurring in the railroad industry following deregulation.

Although many of the small startup carriers filling the skies-and some of the established mid-size carriers now struggling-eventually may disappear, the idea that the U.S. airline industry will shrink to three or four major carriers is highly unlikely, the authors contend. That idea gained hold among some analysts in the early '90s with the demise of Eastern Airlines and Pan American World Airways. Ott and Neidl believe the industry has accepted that competition is here to stay.

Although "Airline Odyssey" (subtitled "The Airline Industry's Turbulent Flight into the Future") offers few new insights for industry professionals, the book is an excellent primer for consumers seeking basic knowledge or better understanding of the industry.

Moreover, consumers will find much to cheer in the text, as the authors make it clear that consumers have mostly been, and will continue to be, the major beneficiaries of airline industry deregulation.

The recent cornucopia of low fares, more flights and new low-cost carriers gradually has been bringing about a "transformation of the airlines from being an expensive means of travel for the elite to a system of mass transportation," they write.

Book excerpt

"Over the last five years, the world airline industry has endured more upheaval than in any other comparable period of the post-World War era. Following the deregulation trend that began in 1978 in the United States, nations in Europe and other key areas have turned away from economic regulation of the industry. Instead, they are relying on market forces to mold the industry."